Interpreting the Corporate Standard for U.S. Public Sector Organizations

The Greenhouse Gas Protocol for the U.S. Public Sector Interpreting the Corporate Standard for U.S. Public Sector Organizations W O R L D R E S O U R C E S I N S T I T U T E

GHG Protocol Team Authors Stephen Russell Mary Sotos LMI Team Authors Virginia Bostock Michael Canes Emil Dzuray Robert Hardison Rachael Jonassen Julia Kalloz Snapper Poche Core Advisors Peggy Foran, The Climate Registry Jill Gravender, The Climate Registry Matthew Gray, U.S. Department of Energy Verena Radulovic, U.S. EPA Climate Leaders John Sottong, U.S. EPA Climate Leaders Bella Tonkonogy, U.S. EPA Climate Leaders

Table of Contents Introduction 2 Chapter 1 GHG Accounting and Reporting Principles S T A N D A R D 8 Chapter 2 Organizational Goals and Inventory Design 12 Chapter 3 Setting Organizational Boundaries S T A N D A R D 16 Chapter 4 Setting Operational Boundaries S T A N D A R D 24 Chapter 5 Tracking Emissions Over Time S T A N D A R D 36 Chapter 6 Identifying and Calculating GHG Emissions 44 Chapter 7 Managing Inventory Quality 54 Chapter 8 Reporting GHG Emissions S T A N D A R D 64 Chapter 9 Verification of GHG Emissions 70 Chapter 10 Setting GHG Targets 76 Appendix A Overview of GHG Programs 88 Appendix B Equity Share Consolidation Approach 90 Appendix C Accounting for Sequestered Atmospheric Carbon 92 Appendix D Appendix E Appendix F Acronyms Glossary References Contributors Accounting for Indirect Emissions from Purchased Electricity Public Operations and Scopes Accounting for Indirect Emissions Reductions 94 96 97 98 99 106 107

Introduction The Greenhouse Gas Protocol Initiative The Greenhouse Gas Protocol Initiative was launched in 1998 with the mission of developing internationally accepted greenhouse gas (GHG) accounting and reporting standards and to promote their broad adoption. Designed as a multistakeholder partnership of businesses, non-governmental organizations (NGOs), and governments, it was convened by the World Resources Institute (WRI), a U.S.-based environmental NGO, and the World Business Council for Sustainable Development (WBCSD), a Geneva-based coalition of international companies. 2

I N T R O D U C T I O N 3 The GHG Protocol Corporate Standard The cornerstone document of the GHG Protocol Initiative is the revised edition of the GHG Protocol Corporate Accounting and Reporting Standard (Corporate Standard, 2004), which provides a step-by-step guide for quantifying and reporting GHG emissions. Published first in 2001 and revised in 2004, the Corporate Standard has been widely accepted and adopted around the globe by businesses, NGOs, and governments (see Box 1.1 and Appendix A). Widespread adoption of the Corporate Standard is attributable to the fact that it is robust, practical, and builds on the experience and expertise of numerous practitioners. The Corporate Standard was designed to be program and policy neutral, allowing users the flexibility to adapt the core methodology and concepts to specific accounting and reporting needs. To provide guidance on how to build GHG policies, reporting programs 1, and tools based on the concepts of the Corporate Standard, the GHG Protocol Initiative developed two accompanying documents: Measuring to Manage: A Guide to Designing GHG Accounting and Reporting Programs (2007), and Designing a Customized Greenhouse Gas Calculation Tool (2007). Why a GHG Protocol for the U.S. Public Sector? Government organizations worldwide have identified the need to start tracking and managing their GHG emissions, both to demonstrate environmental leadership and to prepare for future reporting policies and regulations. While the Corporate Standard provides the basic means by which any type of organization can create a GHG inventory, many public organizations have sought tailored guidance to interpret the Corporate Standard specifically for the public sector context, especially when coordinating GHG reporting requirements across multiple government organizations. All stakeholders benefit from accounting and reporting GHG emissions in a way that makes it easier to calculate, track, and compare progress over time. In the United States, public sector activities often involve shared resources between multiple organizations and leasing arrangements for buildings, vehicles, and land that can pose challenges attributing ownership or control of GHG emissions. Public organizations have asked for case studies reflecting the experiences and challenges of public sector GHG B O X 1. 1 Programs and Specifications based on the GHG Protocol Corporate Standard Voluntary GHG reporting programs American College and University President s Climate Commitment The Climate Registry Global Reporting Initiative EIA 1605b The World Wildlife Fund Climate Savers ICLEI (Local Governments for Sustainability) Carbon Disclosure Project Brazil GHG Protocol Program China Energy and Carbon Registry Mexico GHG Program Philippine GHG Accounting and Reporting Program India GHG Inventory Program South Korea Greenhouse Gas Emission Information System (GEI) Industry associations with sector-specific protocols The International Aluminum Institute International Council of Forest and Paper Associations International Iron and Steel Institute World Business Council on Sustainable Development Cement Sustainability Initiative International Petroleum Industry Environmental Conservation Association ISO 14064 accounting and reporting, acknowledging the ways decision-making approaches and priorities differ in the public sector versus private sector (e.g., greater public accountability and freedom of information requirements) and providing examples of best practices. For governments that already monitor and report energy use and other environmental metrics, GHG emissions reporting represents a new and integrative performance indicator.

Introduction Interpreting the Corporate Standard As reflected in its title, The GHG Protocol for the U.S. Public Sector: Interpreting the Corporate Standard for U.S. Public Sector Organizations does not include substantively new or different accounting or reporting requirements from the Corporate Standard and does not constitute a separate or different standard. Instead, it interprets the content and structure of the Corporate Standard for the context of the public sector. It is referred to interchangeably in this document as the U.S. Public Sector Protocol. Much of the text in the U.S. Public Sector Protocol is taken from the Corporate Standard, but most chapters and diagrams include modifications in wording, examples, or structure in order to improve clarity and applicability to the public sector. F O C U S O N T H E U N I T E D S T AT E S The structure and responsibilities of the public sector vary widely across countries and the time and resources available for the development of this protocol did not permit a comprehensive engagement with public organizations and other stakeholders worldwide. The recent emergence of GHG reporting programs and policies for government organizations in the United States further elevated the priority of this region. Therefore, this U.S. Public Sector Protocol was developed primarily for U.S. government organizations. However, since it is based on the internationally accepted Corporate Standard, it should have applicability to governments worldwide. Objectives of the U.S. Public Sector Protocol This U.S. Public Sector Protocol was designed with the following objectives in mind: To help public organizations prepare a GHG inventory that represents a true and fair account of their emissions, through the use of standardized approaches To simplify the process and reduce the costs of compiling a GHG inventory To provide public sector organizations with information for use in building an effective strategy to manage and reduce GHG emissions To support voluntary and mandatory GHG reporting To increase consistency and transparency in GHG accounting and reporting among public sector organizations and GHG programs. How This Protocol Was Developed To engage the public sector and provide a robust interpretation of the Corporate Standard principles, in 2008 WRI partnered with the LMI. LMI is a not-for-profit consulting company that primarily serves U.S. government organizations. Throughout this process, LMI worked with the Department of Energy Federal Energy Management Program and EPA Climate Leaders to ensure that this protocol could function as the background for U.S. Federal government GHG reporting requirements related to Executive Order 13514. (See Chapter 2 for a description of this policy.) Like the Corporate Standard, this protocol was developed through a multi-stakeholder process. The U.S. Public Sector Protocol involved the input of over 60 experienced public sector managers, technical experts, and consultants across a range of organizations (see the Contributors section). Several government organizations also road tested the protocol, including many U.S. federal agencies whose participation was coordinated by LMI and the Department of Energy. Who Should Use This Protocol? The public sector is a broad term that includes any organization owned, controlled or operated by the government, including government agencies, school systems, quasi-governmental organizations and utilities, as well as public-private partnerships. This protocol is applicable to all levels of government in the United States, including federal, state, regional, and municipal/city government. The protocol will help managers of organizations at all government levels design and develop a GHG inventory. Policymakers developing new regulations and organization-level GHG management strategies can also look to the case studies highlighting successes in implementing and administering GHG management programs. For organizations that have already created GHG inventories through voluntary or mandatory programs that are based on the Corporate Standard, this protocol can provide useful background information and clarify the rationale behind key accounting issues. (See Appendix A for a list of existing programs). For the purposes of this document, the terms entity, agency, and organization are used interchangeably, although they may represent specific organizational types and relationships within a given jurisdictional context. 4 I N T R O D U C T I O N

5 I N T R O D U C T I O N 5 Relationship to GHG Programs The U.S. Public Sector Protocol s consistency with the Corporate Standard ensures that it maintains compatibility with most recognized reporting programs and registries. The Corporate Standard was designed to provide a common, flexible framework defining the key concepts and processes. It does not specify technical details such as calculation methods, emission factors, reporting formats or verification requirements. Many voluntary reporting programs and registries have adapted and customized the Corporate Standard to serve as the basis for their reporting protocols and procedures, usually pairing them with specific calculation tools and reporting templates to ensure that members reports are accurate and consistent. Mandatory reporting requirements for government organizations will likely specify details that are left open in this protocol, such as which specific scope 3 emission categories, if any, should be included; fiscal year versus calendar year reporting; centralized vs. decentralized data calculation; and GHG emission targets. The Corporate Standard and U.S. Public Sector Protocol are considered program- and policy-neutral in that they allow these technical policy decisions to be made by GHG programs. L O C A L G O V E R N M E N T O P E R AT I O N S ( L G O ) P R O T O C O L The Local Government Operations (LGO) Protocol provides a flexible framework focused on serving the needs of local government organizations. The LGO Protocol was drafted jointly by the Climate Registry, ICLEI (Local Governments for Sustainability), California Climate Action Registry, and the California Air Resources Board, and reflects the compiled best practices and insights of a broad stakeholder process. These partner programs have based their individual reporting protocols and the LGO Protocol on the Corporate Standard, and each has directed its local government members to report based on the LGO Protocol. The LGO Protocol includes calculation procedures and appendices detailing how each partner s reporting requirements differ (emission factors, verification requirements, etc.). Because of its compatibility with both the Corporate Standard and this U.S. Public Sector Protocol, local government bodies should consult the LGO Protocol for accounting guidance that is tailored to cities, counties, and municipalities. What This Protocol Includes This is a stand-alone protocol that provides standards and guidance for U.S. public organizations. It contains all the same accounting standards as the Corporate Standard, but features updates in wording and format, consolidation of key points for the public sector, and additional case studies, graphs, and tables. It covers the accounting and reporting of the six GHGs regulated by the Kyoto Protocol carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 ). Although this protocol is designed to develop a verifiable inventory, it does not provide a standard for conducting verification. This protocol should not be used to quantify the reductions associated with GHG mitigation projects. The Project Protocol provides guidance for this purpose. (See What This Protocol Does Not Include below.)

Introduction F O R M AT: S T A N D A R D S A N D Most chapters are divided into standards and guidance sections, with the standard sections conveying the required elements for each inventory component, and the guidance sections elaborating on how the public sector context influences the types of choices that organizations might face when implementing this component. Some chapters only feature a guidance section, with no standard section: these chapters address aspects of inventory development for which this protocol does not specify required elements, but instead offers recommended approaches. Specifically, these guidance chapters address how to define the goals for inventory design (Chapter 2), how to identify and calculate emissions (Chapter 6), how to establish an inventory quality management system (Chapter 7), how to prepare for and structure inventory verification (Chapter 9), and how to set a GHG target (Chapter 10). T E R M I N O L O G Y : S H A L L, S H O U L D, A N D M AY The term shall is used in this protocol to indicate what is required in order for a GHG inventory to be in conformance with the U.S. Public Sector Protocol; it does not convey a statutory requirement. The term should is used to indicate a recommendation, but not a requirement. The term may is used to indicate an option that is permissible or allowable. What This Protocol Does Not Include There are other types of GHG accounting and/or reporting beyond the organizational or entity-wide inventories outlined in this protocol and the Corporate Standard. These include project-level accounting, community-level inventories, and national inventories. This protocol does not provide guidance on these methodologies. P R O J E C T- L E V E L A C C O U N T I N G The GHG Protocol Initiative developed The GHG Protocol for Project Accounting (Project Protocol) in 2005 to serve as a guide for quantifying the reductions and avoided emissions from GHG mitigation projects such as renewable energy generation projects; landfill methane gas capture; land-use, land-use change and forestry, etc. The following two supplements to the Project Protocol provide methodologies for specific types of projects: The Land Use, Land-Use Change, and Forestry Guidance (2006) Guidelines for Quantifying GHG Reductions from Grid- Connected Electricity Projects (2007). C O M M U N I T Y- L E V E L I N V E N T O R I E S Community-level inventories focus on emissions from all sectors within a geographically-defined community, including electricity generation, transportation, land-use change, etc. Many public sector leaders are being called upon to create these geographically-defined inventories for their regions in order to identify larger sectoral emissions trends that can guide reduction priorities and policies. This type of inventory is based on boundaries, assumptions and methodologies which are significantly different from those referenced and utilized in the U.S. Public Sector Protocol and the Corporate Standard, which only track emissions sources that a given entity owns or controls. For example, a county government organization may prepare a GHG inventory of its own operations and also conduct an inventory reflecting the county s residential power use, energy generation, transportation, etc. Guidelines for community-wide inventories are available through programs such as ICLEI (Local Governments for Sustainability). 2 N AT I O N A L I N V E N T O R I E S National-level (country) GHG inventories represent emissions from all sectors within a country, including electricity generation, transportation, land-use change, etc. These inventories are usually compiled via a top-down exercise using national economic data for the purposes of the United Nations Framework Convention on Climate Change process. See IPCC (2006) for best practices on national inventories. Reporting in Accordance with the GHG Protocol for the U.S. Public Sector This protocol focuses on designing and developing a GHG inventory, including the accounting and reporting of emissions. It does not require emissions information to be reported to LMI, WRI, WBCSD, or any other organization. When regulatory requirements are not consistent with the U.S. Public Sector Protocol, the organization s report must describe the variances and the reasons for them. 6 I N T R O D U C T I O N

I N T R O D U C T I O N 7 GHG Calculation Tools For many public organizations, the calculation methods and tools used to complete a GHG inventory may be selected at a technical management level and/or integrated into existing environmental reporting mechanisms. This U.S. Public Sector Protocol does not require the use of any particular calculation tool, but does require that all methods, procedures, and tools utilized in completing a GHG report are transparently detailed. Additionally, when a comprehensive tool does not exist, estimates and thorough documentation of the assumptions and shortcomings of those estimates are required. To complement its published standards, WRI offers a number of calculation tools for free on the GHG Protocol Initiative website (www.ghgprotocol.org). These provide step-by-step guidance and electronic worksheets to help users calculate GHG emissions from specific sources or sectors. The cross-sector tools calculate emissions from sources common to many sectors and operations, including transportation, electricity consumption, stationary combustion, and refrigerant use. (Most public sector emissions fall within these cross-sector sources). The sector-specific tools calculate emissions from specialized industrial processes such as aluminum, cement, or paper and pulp production. All of these tools are consistent with those proposed by the Intergovernmental Panel on Climate Change (IPCC) for compilation of emissions at the national level (IPCC, 2006). They are designed to be user-friendly for non-technical staff and to increase the accuracy of emissions data at an organization level. Frequently Asked Questions Below is a list of frequently asked questions, with directions to the relevant chapters: What is the difference between direct and indirect emissions and why does it matter? C H A P T E R 4 Which indirect emissions should I report? C H A P T E R 4 How do I account for leased buildings and vehicles? C H A P T E R 4 How do I account for contracted or outsourced operations? C H A P T E R 4 What is a base year and why do I need one? C H A P T E R 5 My emissions changed with alterations to the organization s structure. How do I account for these changes? C H A P T E R 5 How do I identify and calculate my organization s emission sources? C H A P T E R 6 What kinds of tools are there to help me calculate emissions? C H A P T E R 6 What data collection activities and data management issues do my facilities have to deal with? C H A P T E R 6 What determines the quality and credibility of my emissions information? C H A P T E R 7 What information should be included in a GHG emissions report? C H A P T E R 8 What data must be available to obtain external verification of the inventory? C H A P T E R 9 What is involved in setting an emissions target and how do I report performance in relation to my target? C H A P T E R 1 0 What are the principles that underpin a GHG inventory? C H A P T E R 1 What goals should I consider when setting out to account for and report emissions? C H A P T E R 2 How do I set an organizational boundary that determines which operations or facilities are included in the inventory? C H A P T E R 3 How do I deal with complex organizational structures and shared GHG emissions ownership? C H A P T E R 3 N O T E S 1 GHG program is a generic term used to refer to any voluntary or mandatory international, national, sub-national government or non-governmental authority that registers, certifies, or regulates GHG emissions or removals. 2 See Ch. 3.2.2 on community-level GHG inventories in International Local Government GHG Emissions Analysis Protocol (IEAP) v. 1.0, ICLEI (Local Governments for Sustainability), 2009.

1 GHG Accounting and Reporting Principles S T A N D A R D As with financial accounting and reporting, generally accepted greenhouse gas (GHG) accounting principles are intended to underpin and guide GHG accounting and reporting to ensure that the information represents a faithful, true, and fair account of an organization s GHG emissions. These principles also permit data to be accurately compared from year to year and across multiple entities. This is particularly critical for departments or sub-organizations rolling up or aggregating their inventories to higher organizational units (division, bureau, etc.) S T A N D A R D 8

C H A P T E R 1 GHG Accounting and Reporting Principles 9 GHG accounting and reporting practices are evolving and are new to many organizations. However, the following principles established by the Corporate Standard and applicable to this U.S. Public Sector Protocol are derived in part from generally accepted financial accounting and reporting principles. They reflect the outcome of a collaborative process involving stakeholders from a wide range of technical, environmental, and accounting disciplines. These are not legal definitions, but are the principles on which specific reporting policies or choices should be based. GHG accounting and reporting shall be based on the following principles: R E L E VA N C E Ensure the GHG inventory appropriately reflects the GHG emissions of the organization and serves the decision-making needs of users both internal and external to the organization. C O M P L E T E N E S S Account for and report on all GHG emission sources and activities within the chosen inventory boundary. Disclose and justify any specific exclusions. C O N S I S T E N C Y Use consistent methodologies to allow for meaningful comparisons of emissions over time. Transparently document any changes to the data, inventory boundary, methods, or any other relevant factors in the time series. T R A N S P A R E N C Y Address all relevant issues in a factual and coherent manner, based on a clear audit trail. Disclose any relevant assumptions and make appropriate references to the accounting and calculation methodologies and data sources used. A C C U R A C Y Ensure that the quantification of GHG emissions is systematically neither over nor under actual emissions, as far as can be judged, and that uncertainties are reduced as far as practicable. Achieve sufficient accuracy to enable users to make decisions with reasonable assurance as to the integrity of the reported information. S T A N D A R D

GHG Accounting and Reporting Principles The application of these principles will ensure that the GHG inventory constitutes a faithful, true, and fair representation of an organization s GHG emissions. Their primary function is to guide the implementation of the U.S. Public Sector Protocol, particularly when the application of the standards to specific issues or situations is ambiguous. There may be situations in which certain principles such as accuracy and completeness are in tension with each other: for example, when a lack of accurate data impedes the creation of a complete inventory. In these situations, the other principles such as relevance and transparency provide the context in which those choices can be made: i.e., how relevant is the lack of specific data in relation to the entire inventory? Documenting all information with transparency also ensures that the decisions an organization makes are clear to managers, verifiers and other stakeholders. These principles have been repeated in most voluntary GHG reporting program protocols, including those for The Climate Registry, ICLEI (Local Governments for Sustainability), and the Global Reporting Initiative. These programs may add other specific requirements to these principles and terms. Relevance For a public organization s GHG report to be relevant means that it contains the information that users both internal and external to the organization need for their decision making. An important aspect of relevance is the selection of an appropriate inventory boundary or the selection of which activities should be accounted for and reported in an organization s GHG inventory. This selection should reflect the substance and nature of the organization s responsibilities and sphere of control, not merely its legal form. Relevance may also be dictated by regulatory requirements that stipulate the information to be included or the reporting frequency. The choice of the inventory boundary is dependent on the characteristics of the organization, the intended purpose of information, and the needs of the users. When choosing the inventory boundary, a number of factors should be considered: Organizational structures: Determining which activities an organization owns, controls or operates Operational boundaries: Identifying on-site and offsite activities, shared facilities, processes, and services Operational context: Understanding the nature of activities, geographic locations, sector(s), purposes of information, and users of information. More information on defining an appropriate inventory boundary is provided in Chapters 2 (Inventory Goals), 3 (Organizational Boundaries), and 4 (Operational Boundaries). Completeness All relevant emissions sources within the chosen inventory boundary need to be accounted for so that a comprehensive and meaningful inventory is compiled. In practice, a lack of data or the cost of gathering it may be a limiting factor. Sometimes it is tempting to define a minimum emissions accounting threshold (often referred to as a de minimis threshold), specifying that a small source or group of sources not exceeding a certain size can be omitted from the inventory. Technically, such a threshold simply means that the total emissions listed in the final inventory represent a predefined underestimate. Although it appears useful in theory, and multiple established GHG programs allow for de minimis thresholds, the practical implementation of such a threshold is not compatible with the completeness principle. In order to utilize a de minimis threshold, the emissions from a particular source or activity would have to be quantified to ensure they were under the threshold. But once emissions are quantified, most of the benefit of having a threshold is lost. However, many GHG reporting programs such as The Climate Registry have modified the de minimis concept so that rather than omitting certain sources from an inventory that fall beneath a defined threshold, reporting organizations may apply a simplified estimation methodology or alternate methodology to calculate the emissions from these sources. This type of approach can reduce the reporting burden for sources for which data are difficult to locate or use, while still achieving the requirement of a complete inventory. In the context of verification, a materiality threshold is often used to determine whether an error or omission is a material discrepancy or not that is, whether it significantly impacts the final emissions reported in the inventory. This is not the same as a de minimis threshold for defining a complete inventory. For cases where certain emissions have been excluded, or estimated imprecisely (e.g., due to insufficient data), it is important that this is transparently documented and justified. Verifiers can 10 C H A P T E R 1

C H A P T E R 1 GHG Accounting and Reporting Principles 11 determine the potential impact and relevance of the exclusion, or imprecision, on the overall inventory report. More information on completeness is provided in Chapters 7 (Managing Inventory Quality) and 9 (Verification of GHG Emissions). Consistency Users of GHG information will want to track and compare GHG emissions information over time in order to identify trends and to assess progress towards stated targets and objectives. The consistent application of accounting approaches, inventory boundary, and calculation methodologies is essential to producing GHG emissions data that can be compared internally over time as well as externally with inventories from other reporting organizations. If there are changes in the inventory boundary, methods, data, or any other factors affecting emission estimates, they need to be transparently justified, documented, and disclosed. More information on consistency is provided in Chapters 5 (Tracking Emissions Over Time) and 8 (Reporting Emissions). Transparency Transparency relates to the degree to which information on the processes, procedures, assumptions, and limitations of the GHG inventory are disclosed in a clear, factual, neutral, and understandable manner based on clear documentation and archived data (i.e., an audit trail). Information needs to be recorded, compiled, and analyzed in a way that enables internal reviewers and external verifiers to confirm its credibility. Specific exclusions or inclusions need to be clearly identified and justified, assumptions disclosed, and appropriate references provided for the methodologies applied and the data sources used. The information should be sufficient to enable a third party to derive the same results if provided with the same source data. A transparent report will provide a clear understanding of the issues in the context of the reporting organization and a meaningful assessment of performance. An independent external verification is a good way of ensuring transparency and determining that an appropriate audit trail has been established and documentation provided. More information on transparency is provided in Chapters 8 (Reporting Emissions) and 9 (Verification of GHG Emissions). Accuracy Data should be sufficiently accurate to enable intended users to make decisions with reasonable assurance that the reported information is credible. GHG measurements, estimates, or calculations should be systematically neither over nor under the actual emissions value, as far as can be judged, and uncertainties should be reduced as far as practicable. Reporting on measures taken to ensure accuracy in the accounting of emissions can help promote credibility while enhancing transparency. More information on accuracy is provided in Chapter 7 (Managing Inventory Quality).

2 Public Sector Goals and Inventory Design What goals should I consider when setting out to account for and report GHG emissions? Public organizations at the local, state, regional or federal level generally want their GHG inventory to be capable of serving multiple goals. Identifying these goals from the outset will ensure that the inventory provides information for both current and future purposes. It will also assist in determining at what organizational level to conduct an inventory i.e., at a division, bureau, agency, or multi-agency level. 12

C H A P T E R 2 Public Sector Goals and Inventory Design 13 The U.S. Public Sector Protocol has been designed as a comprehensive GHG accounting and reporting framework to provide the informational building blocks capable of serving most organizational goals (see Box 2.1). The inventory data collected according to the U.S. Public Sector Protocol can be aggregated and disaggregated for various organizational and operational boundaries and for different geographic scales (facility, field office, bureau, state, country, etc.). Public sector managers should be aware that certain facilities and sub-units within their organizations may already be collecting, managing, and reporting energy data and other information that is essential for GHG accounting. For example, U.S. federal agencies track and report energy and fuel use through Environmental Management Systems (EMS) or comprehensive planning mechanisms that facilitate data gathering, quality checking, and reporting. It is important that such existing efforts be leveraged to maximize efficient reporting and to avoid duplication of effort, overlaps, gaps, or conflicts in reporting requirements. The guidance sections of Chapters 3 and 4 provide additional information on how to design an inventory for different goals and uses. Demonstrating Leadership As concerns over climate change grow, stakeholders such as citizens and civic organizations are increasingly calling for greater disclosure of GHG information by both private companies and government operations. In response, a growing number of public sector organizations are demonstrating leadership and walking the talk by tracking and reporting their performance across a wide range of environmental issues, including GHG emissions. (See case study below on the Virginia Municipal League.) Voluntary reporting programs are often the means by which government organizations commit to reporting and reducing their GHG emissions. Such programs can ensure accountability, provide a platform for public reporting, and usually offer technical assistance in developing the inventory and setting voluntary targets. Most voluntary programs require the reporting of direct emissions from operations (including all six Kyoto GHGs), as well as indirect emissions from purchased electricity, heat and steam. A GHG inventory prepared in accordance with the B O X 2. 1 Organizational goals served by GHG inventories Demonstrating leadership Voluntary public reporting of GHG emissions and setting GHG reduction targets Participation in voluntary GHG reporting programs (e.g., The Climate Registry) Green procurement policies (e.g., EPA s Environmentally Preferable Purchasing program) Managing GHG risks and identifying reduction opportunities Managing risks associated with GHG constraints in the future Identifying cost effective GHG and energy reduction opportunities Setting GHG targets, measuring and reporting progress Complying with mandatory reporting requirements Meeting local, regional, or national mandatory reporting requirements for facility or entity-wide reporting (e.g., executive orders) Preparing for upcoming regulation and policies Gaining relevant GHG inventory experience to inform public policy design Building experience that allows informed participation in policy-making and standards development Developing in-house technical expertise to assist other organizations Acting as a demonstration laboratory for citizens and other organizations U.S. Public Sector Protocol will usually be compatible with most requirements, particularly for programs that are based upon the Corporate Standard. However, since the accounting guidelines for many voluntary programs are periodically updated, organizations planning to participate are advised to contact the program administrator to check the current requirements. Appendix A provides an overview of GHG programs many of which are based on the Corporate Standard and therefore consistent with the U.S. Public Sector Protocol.

Public Sector Goals and Inventory Design Virginia Municipal League: The Green Government Challenge The Virginia Municipal League (VML) is a statewide, nonprofit, nonpartisan association of city, town, and county governments established in 1905 to improve and assist local governments through legislative advocacy, research, education, and other services. The Green Government Challenge, the cornerstone of the VML s Go Green Initiative (www.gogreenva.org), inspired 41 local governments in 2008 to implement specific environmental policies and practical actions that reduce GHG emissions. Current registration for the 2009 program includes 65 local governments. One of the 30 action items city governments can take is to conduct a GHG inventory of government operations. For each action item, points are awarded with a total possible score of 200. Members achieve VML-Certified Green Government status by accumulating a minimum of 100 points. Such regional initiatives can strengthen the impact of individual governments demonstrations of leadership. In addition, organizations may demonstrate leadership by committing to environmentally preferable procurement policies impacting GHG emissions along the supply chain. U.S. programs such as the EPA Environmentally Preferable Purchasing program or ENERGY STAR can leverage the purchasing power of government organizations to drive GHG reductions in their supply chains and support the development of new markets for zero or low GHG-intensive goods and services. Managing GHG Risks and Identifying Reduction Opportunities What gets measured gets managed. Compiling a GHG inventory improves a public sector organization s understanding of its emissions profile and the opportunities to reduce emissions and save money. It also provides an indication of potential liability or exposure. An organization s GHG exposure is increasingly becoming a management issue in light of heightened scrutiny by the public and the emergence of environmental regulations and policies designed to reduce GHG emissions. Such policies may apply directly to an organization s operations, but can also have impacts throughout the organization s supply chain (i.e., its purchased goods and services). A limited focus on an organization s direct emissions may miss GHG risks and reduction opportunities, and lead to a misinterpretation of the organization s actual GHG exposure. Indeed, an organization s indirect emissions can be numerically the most significant within their inventory (see Chapter 4 for an explanation of indirect emissions). Accounting for emissions can help identify the most effective reduction opportunities that drive increased materials and energy efficiency, as well as identify zero or low emission products and services. This in turn can reduce operating costs, enable more effective use of limited organizational budgets, and help distinguish the organization as a leader in an increasingly environmentally conscious society. Complying with Mandatory Reporting Requirements Some government organizations have had experience with mandatory GHG emissions reporting for specific facilities (e.g., for energy generators above a certain threshold size). However, government authorities at various levels have increasingly set policies that require GHG reporting for a wider variety of government activities. These policies may take the form of executive orders (EOs), which are policy directives issued by executive bodies usually intended to manage operations within the government. For example, EO 13514 sets energy and water use reduction goals for federal operations (see the Executive Order case study below), EO S-20-04 sets energy efficiency goals for California state buildings, and EO 07-126 obligates Florida s state government to reduce GHG emissions. 1 Executive Order 13514: Federal Leadership in Environmental Performance On October 5, 2009, President Obama signed an executive order requiring federal agencies to conduct annual GHG inventories of their operations and set reduction goals, in addition to tracking and reducing water, energy, and petroleum use. The GHG inventory reporting requirements were designed according to the framework in this U.S. Public Sector Protocol. According to the order, each federal agency has to set their own reduction targets, expressed as a reduction in absolute emissions by 2020 compared to the agency s estimated emissions from 2008. The agencies have created separate targets for each scope. The aggregate of 35 agencies goals for scope 1 and scope 2 collectively represent a 28% reduction, with scope 3 reduction targets to be announced at a later date. See Executive Order No. 13514, 74 Fed. Reg. 52117 (Oct. 9, 2009), available at http://www.gpo.gov/fdsys/pkg/dcpd-200900783/pdf/ DCPD-200900783.pdf 14 C H A P T E R 2

C H A P T E R 2 Public Sector Goals and Inventory Design 15 North Carolina Department of Natural Resources: Building Support and Capacity With a mission to manage the state s natural resources and regulate its air and water quality, the North Carolina Department of Environment and Natural Resources (DENR) represents environmental leadership in the state. In 2006, the DENR participated in a state-wide climate action initiative to examine the state s GHG emissions and reduction options. This process brought together stakeholders from different sectors (called the Climate Action Plan Advisory Group) to assess the state s opportunities for reducing its GHG emissions. One cross-cutting measure that the group identified was for the DENR to inventory its own GHG emissions and report them as a member of The Climate Registry. With emissions occurring in multiple divisions across the state, the DENR needed to coordinate its data-collection systems and state-wide accounting with other agencies such as the Department of Administration and the Department of Transportation. Building this internal capacity was aided by the momentum of a large, internal stakeholder process, management support from the department s secretary and division directors, and streamlining the GHG inventory process with existing legislative mandates to reduce energy and petroleum consumption in state government buildings and fleets. voluntary reporting programs (see North Carolina case study below). Some government organizations with policy-making authority may find themselves in the position of actually crafting GHG policies and regulations, and in-house experience with GHG inventories may help in creating constructive and effective rules. Private firms as well as individual citizens may also find it unfair for a public organization to impose regulations for GHG reporting if the public sector itself is not participating. Furthermore, by creating a GHG inventory or participating in a voluntary GHG reporting regime, the public sector can also act as a demonstration laboratory for developing new data collection methods and efficient reporting procedures that later may be adopted by other organizations. Public organizations often have the latitude to share their experiences and GHG inventory resources widely. N O T E S 1 See California Executive Order No. S-20-04 (July 27, 2004) and Florida Executive Order 07-126 (July 13, 2007). As mandatory GHG programs continue to develop at the local, state, regional, and national levels, organizations may need to coordinate and leverage their reporting practices to achieve consistency. Preparing a credible and comprehensive inventory early on can initiate the data collection mechanisms and practices necessary for almost all reporting purposes. It can also serve to document an organization s early emissions reductions, which some programs may take into consideration for the application of future reporting requirements. For instance, the state of California indicated that it will use its best efforts to ensure that organizations that registered certified emission reports with the California Climate Action Registry will receive appropriate consideration under any future California regulatory program relating to GHG emissions. Gaining Relevant GHG Experience to Inform Public Policy Design Organizations that have taken the initiative to develop a GHG inventory often have the opportunity to have a seat at the table during critical policy-making or standards development. Sharing GHG inventory experience with relevant policymakers can ensure that emerging GHG policies and regulations reflect practical insights and maximize synergies between multiple mandatory or

3 Setting Organizational Boundaries S T A N D A R D How do I set an organizational boundary that determines which operations or facilities are included in the inventory? How do I deal with complex organizational structures and shared GHG emissions ownership? Public sector operations vary in their legal and organizational structures; they include those fully owned and operated by the government, those owned by the government but operated by a contractor or private entity, and those owned and operated by multiple governmental organizations. S T A N D A R D 16

C H A P T E R 3 Setting Organizational Boundaries 17 Tables 3.1 and 3.2 detail several structures and relationships common to government organizations, though some government operations may be combinations of more than one of the categories. The complexity of these arrangements means that particular care must be taken when setting organizational boundaries, and thorough documentation is required to ensure transparency. Defining the Organization Government operations are often structured in hierarchies with individual organizations exercising different levels of autonomy. The appropriate organizational level for conducting a GHG inventory i.e., a division, agency, or multiple agencies must first be defined. Some factors to consider in making this designation might include: The levels specified by previous reporting requirements The levels or units where meaningful operational policy decisions can be implemented The level at which the data can be most conveniently collected. the equity share approach is often less applicable to public sector entities; however, it is discussed separately in Appendix B for those organizations for which an equity share inventory may produce a more meaningful reflection of their GHG emissions than the control approach. This U.S. Public Sector Protocol recommends the operational control approach as the most appropriate boundary for government organizations, as their primary activities most often consist of providing public services through specific operations. Most government organizations operations are not structured to gain economic benefit from managing financial assets. However, there may be organizations whose core activities include financially controlling and managing assets such as real estate, vehicle fleets, and land. In such cases, the financial control approach may be relevant. Organizations shall account for and report their consolidated GHG data according to either one of the control approaches presented below or, if appropriate, the equity share approach. Only one approach can be used to prepare a given inventory and that approach must be Once determined, the management of the headquarters organization or overarching governing body must decide on a consolidation approach (i.e., the financial or operational control, or the equity share approach). Once an organization-wide consolidation policy has been selected, it shall be applied consistently to all levels of the organization to avoid double counting or omitting emissions. Selecting a Consolidation Approach For the purpose of accounting and reporting GHG emissions, organizations must select an approach for consolidating or grouping together the activities or the GHG-emitting sources that fall under the organization s responsibility. This grouping is known as the organizational boundary. R E C O M M E N D E D A P P R O A C H : O P E R AT I O N A L C O N T R O L The Corporate Standard describes two distinct approaches that can be used to consolidate GHG emissions for organizational reporting: control and equity share. The control approach can be further subdivided into financial control and operational control. Public sector activities usually do not involve buying or trading of equity and individual organizations do not usually directly own or generate value from assets such as real estate. Therefore, S T A N D A R D

Setting Organizational Boundaries S T A N D A R D applied consistently across all of an organization s operations. To reflect the range of these activities, organizations may choose to develop multiple separate inventories using different consolidation approaches. If the reporting organization wholly owns and operates all of its activities, its organizational boundary will be the same no matter which approach is used. For organizations with joint or shared operations, or for those that manage leased assets as a lessee or lessor, the resulting emissions profile will differ depending on which approach is used. The choice of approach will also affect whether emissions from these operations or assets are categorized as direct or indirect (see Chapter 4). The Control Approaches Control can be defined in either financial or operational terms. Under the control approach, an organization accounts for 100 percent of the GHG emissions from operations over which it exercises control. It does not account for GHG emissions from operations in which it owns an interest but has no control. When using the control approach to consolidate GHG emissions, organizations shall choose between operational control or financial control criteria. (See Box 3.1 for the definitions of operational and financial control.) In many cases, organizations exercise both forms of control over a given operation or activity. In making the choice between the two control approaches, organizations should select the criterion that best reflects the organization s actual ability to control emissions, as well as how GHG reporting can be aligned with financial and environmental reporting and any other emissions reporting requirements. B O X 3. 1 Defining Operational and Financial Control Operational Control: the authority to introduce and implement operating policies. Operational control is generally demonstrated if organization holds an operating license for the facility. Financial Control: the authority to direct the financial and operating policies of the operation with a view to gaining economic or other benefits from its activities. This includes a right to the majority of risks and rewards of ownership of the operation s assets. Financial control is demonstrated if the operation is fully consolidated in the organization s financial accounts. 18 C H A P T E R 3